Valeo Pharma has a 91 per cent upside, says Industrial Alliance

Industrial Alliance Capital Markets analyst Chelsea Stellick is sticking with her “Buy” rating on micro-cap stock Valeo Pharma (Valeo Pharma Stock Quote, Chart, News, Analysts, Financials CSE:VPH), which just announced a COVID-19 clinical trial for its bioflavonoid HesperCo. In an update to clients on Wednesday, Stellick reiterated her “Buy” and $2.20 price target, which at the time of publication represented a projected one-year return of 91.3 per cent.

Montreal-based Valeo Pharma is a specialty pharmaceutical company acquiring or in-licensing both brand name and generic, late-development or commercial-stage drugs for sale in Canada and the US. The company focuses on neurology, oncology and hospital products and has two business segments in branded prescriptions and niche hospital injectable products.

Valeo announced on Wednesday that its HesperCo capsules will be featured in a Montreal Heart Institute randomized double-blind, placebo-controlled clinical trial to evaluate the effect of hesperidin, the medicinal ingredient in HesperCo, on COVID-19 symptoms and its ability to reduce disease severity and the need for hospitalization from COVID-19.

Valeo was given Health Canada approval this past September for the sale of HesperCo via a Natural Product License. Hesperidin is a naturally-occurring bioflavonoid found in orange peels and other citrus and has strong antioxidant and immune system support properties. Valeo has a licensing agreement with Ingenew Pharma to develop, manufacture and commercialize HesperCo capsules where the company has worldwide exclusive rights.

According to a recent research newsletter by MDBriefCase on exploring novel therapeutics for COVID-19, Hesperidin has attracted research attention due to its ability to bind to key proteins of SARS-CoV-2, potentially interfering with viral entry into host cells.

As quoted in a January 12 press release from Valeo, a screening of 1066 natural substances with potential antiviral effect plus 78 antiviral drugs already known in the literature for binding to SARS-CoV-2 proteins, Hesperidin was the only compound that could target the binding interface between viral Spike proteins and ACE-2 human receptors and that recently accumulated evidence “suggests that Hesperidin supplementation may be useful as a prophylactic agent against SARS-Cov-2 infection and as a complementary treatment during COVID-19 disease.”

On the upcoming clinical trial, Valeo CEO Steve Saviuk said in a Wednesday press release, “The immune support properties of hesperidin, the medicinal ingredient contained in HesperCo capsules, and its efficacy against other coronavirus strains are well documented in scientific literature. We are extremely proud to contribute in the fight against the COVID-19 virus with the prestigious MHI and our development partner Ingenew.”

“Our involvement in this study aligns well with our vision to build a Canadian anchor pharmaceutical company and continued commitment to provide Canadian healthcare professionals and patients with innovative solutions to improve quality of life,” Saviuk said.

Commenting on the HesperCo clinical trial, Stellick said she will await further results from the study before making adjustments to her model on VPH. At present, she has anticipated peak sales of HesperCo at $6-$20 million with sales margins of 75-85 per cent and a potential market size on a worldwide basis of US$900 million. Stellick noted in her update that HesperCo is now available for purchase on Amazon for $29.99 with the option of next-day delivery for Prime customers. Stellick said results from the Phase 2 trial are expected by the summer 2021.

As for her valuation on Valeo, Stellick has divided the company’s product pipeline into base and growth products and has assigned different probabilities of success (POS) to each.

“In total, our probability adjusted revenue stream for the base product mix is $6 million (uninflated) and grows year-over-year with inflation to peak in F2030 at $23 million. We have maintained a conservative estimate for the POS for both our regulatory and pre-filing products but do recognize there is ample upside once each product successfully moves into commercialization,” Stellick wrote.

“Valeo’s growth product mix includes five branded products that have significant growth potential in the neurology/Central Nervous System (CNS), oncology, and hospital specialty space,” she wrote.

“Within the growth pipeline there will be marketed products: Onstryv, Ametop, Yondelis and the recent Health Canada approved, HersperCo. The Company anticipates sales of its currently marketed growth products to peak at $17-38 million per annum. Redesca, which is expected to launch in Q1/F21. The Company anticipates sales of Redesca to peak at
$30-40 million per annum,” Stellick said.

Put together, Stellick’s revenue figures for Valeo’s base and growth products are $24 million for fiscal 2021, $45 million for fiscal 2022, $72 million for fiscal 2023 and $84 million for fiscal 2024. On earnings, the analyst has forecasted fiscal 2021 EBITDA of $7.5 million in EBITDA for fiscal 2021, $18.2 million for fiscal 2022, $33.8 million for fiscal 2023 and $39.1 million for fiscal 2024.

For 2020, VPH ended up with a return of 171 per cent, while so far in 2021 the stock is down six per cent.